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While Fed does the ‘twist,’ market is not dancing

The market is looking for more than it got out of last week’s meeting of the Federal Reserve, which limited its stimulus efforts to continuing a bond-buying program.

Stocks dipped downward for three days after the announcement that Operation Twist would run through the end of the year, with the Dow Jones Industrial Average losing almost 322 points, or 2.51 percent. The markets are basically sensing more trouble ahead, while Fed Chairman Ben Bernanke watches to see whether two straight months of subpar job creation become a half-year trend in need of treatment.

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Operation Twist — designed to press down interest rates by unloading short-term Treasury bonds to buy long-term government debt — is a stopgap, an attempt to buy time despite Fed projections that shed half a percentage point off its growth projections this year for gross domestic product.

Several economists peg September as the pivotal month for when the Fed could embark on more quantitative easing — buying assets with money that’s essentially been created electronically — right as the presidential campaign enters its home stretch.

“Under our forecast, deteriorating conditions will convince the Fed to ease again this fall,” Michael Hanson, a senior economist at Bank of America Merrill Lynch, wrote in a note to clients.

Those additional funds — estimated by some Wall Street firms to total half a trillion dollars — would be used to buy bonds backed by mortgages or government debt, pumping hundreds of billions of new dollars into the economy, essentially, with a computer keystroke.

By taking those securities onto its own balance sheet, the Fed would in theory further reduce historically low interest rates, making it cheaper to buy a home and easier to hire new employees.

This would be the third round of quantitative easing since the 2008 financial crisis, and it’s already known by the kind of nickname that sounds like a Hollywood blockbuster “QE3.” It’s a less direct form of stimulus than tax cuts, federal construction programs, or aid to state governments, but it’s what the financial sector is banking on.

“If job creation continues to be sluggish and the unemployment rate stalls or increases, I think QE3 becomes the baseline scenario,” said Roberto Perli, a former Fed official who now works for the research firm International Strategy & Investment. “The important point is that future Fed decisions will be entirely data-dependent, and more specifically labor-market-dependent.”

The Fed is pushing on a string with a very little push. Long-term treasury rates are already in negative territory, so how much capital does this move from the sidelines when businesses are really looking for an uptick in demand?

On the other hand, the Government can borrow long-term cheaply right now, so there is room for fiscal policy to step in and drive more demand while consumers continue to deleverage, but what are the odds of Congress becoming a functional body? Not likely.

Time to GIVE-UP THE SONG AND DANCE AND GET TO WORK....Any Audit that does not determine who failed to implement the Unification Science Upgrades (Making Businesses The First Non-Crime and Debt Expanding Operations, akin to Dr. Einstein's Relativity and the that made the first "USDA Graded", "USP Graded", ".999 Fine Graded", and more business operations) is a theftful misappropriation of tax dollars and principal to the fraudulent loans made in furtherance thereof (to Crime and Debt Expanding Operations).....producing crime and debt, instead of eliminating it (and the deficit, while doing so, platinumizing the dollar, as proper function would've alredy accomplished)....any nuances, since the 1980s discoveries are counterfiet and debt/crime expanding, at least, this much, beware (just as "new" purity level claims, after the 1904-Relativity discovery)....the first exam can be seen at www.JoinUSRecovery.Blogspot.com RCCFM: Always(C): Dr. Eric Who's Who IN America Physician (Ph.D. & Public Health) DrEricShow@Gmail.com